The society as a whole and regulators in specific are paying more and more attention to the
negative influence of financial economic crime on the real economy. Examples of financial
economic crime are money laundering, tax evasion, fraud and terrorist financing. Global
money laundering transactions alone are estimated at 2 to 5% of global GDP, or roughly U.S.
$1-2 trillion annually.
Financial institutions, such as banks, are exploited by criminal(s) (organizations) to proceed
their illicit earnings from financial economic crime. To combat this, financial institutions
are, besides other controls such as customer due diligence at onboarding, expected to
dedicate an increasing amount of resources on detecting suspicious behavior1 by their clients
and to report such behavior to the government2 without delay. Financial institutions
commonly apply 'post-event transaction monitoring' to meet this obligation to detect
suspicious client behavior.
A financial institution’s management board is ultimately accountable for the design and
operating effectiveness of post-event transaction monitoring. However, adhering the three
lines of defense model3, there are several other organizational units that play an essential role
in the post-event transaction monitoring process. Examples (per line of defense) are:
• First line of defense: front-office, operations, IT, legal4;
• Second line of defense: compliance, risk management;
• Third line of defense: internal audit.
In this article we reflect on the role of the second line of defense, and specifically on the role
of the compliance function, in post-event transaction monitoring. First, we elaborate on
post-event transaction monitoring from a process perspective, followed by an overview of the
relevant regulatory requirements5 and a deep-dive on the
specific roles of the compliance function in post-event transaction
monitoring. We finalize this article by reflecting on the
impact of (new) technologies on post-event transaction monitoring
and on the role of compliance and some concluding
remarks.